By Tim Courtney, Chief Investment Officer
The market has been speculating about a recession over the last several months, and after a crucial week of economic reports, talk of a recession is growing louder. The second quarter, like the first quarter, saw the gross domestic product (GDP) shrink in real terms.
The National Bureau of Economic Research (NBER), a nonprofit group of economists, ultimately determines the start and end of a recession based on the definition of a significant decline across the economy lasting more than a few months.1 However, the NBER will often declare a recession several quarters after it starts, sometimes after it actually ends. Amid this uncertainty, there are three indicators we are watching closely.
Despite these concerns, not all signs point to a recession. For the last four months, unemployment has remained at 3.6%, a 40-year low, with the U.S. adding 2.5 million jobs since the start of the year. That, coupled with strong consumer spending, adds to the complexity of the NBER’s decision.8
Regardless of whether a recession happens now or several months down the line, it will eventually happen in this economic cycle that has been so compressed – a peak, deep contraction, magnified recovery and inflationary slowdown in just over two years.
Thankfully, banks and households are much better capitalized than they were during the last non-pandemic recession of 2008-2009. Additionally, the market has already accounted for a certain level of economic and earnings contraction. If you have questions about how a recession may be affecting your assets, please contact your Exencial advisor.
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